What does indemnity accomplish?

Indemnity primarily serves to transfer risk from one party to another, thus providing a sense of protection against potential losses. In a contractual context, indemnity clauses are designed to ensure that one party will compensate another for certain damages or losses incurred. This is essential in various industries, including construction, where contractors face various risks that could lead to financial loss.

When one party provides indemnity, it essentially provides assurance that they will cover any specified costs or damages that arise, thus alleviating the financial burden on the other party. As a result, indemnity helps parties engage in agreements with greater confidence, knowing that certain risks have been assumed by another entity.

In contrast, the other options do not relate directly to the primary function of indemnity. Increasing tax liabilities points to financial consequences but not to the mechanism of transferring risk. Limiting health insurance coverage and creating pension plans for employees pertain to employee benefits and insurance policies and do not encapsulate the idea of risk transfer and compensation that indemnity represents.